Weekly Update: August 28, 2013

| August 28, 2013

Weekly Update:  August 28, 2013

 

Commodity Watch:

It looked as though corn was really going to start advancing earlier in the week.  The commodity swiftly broke to $5.20 a bushel on lackluster crop worries and a newly arriving heat wave in the Midwestern US.

But the rally didn’t hold…

As of this afternoon, corn is back down to $5.00 a bushel.  Investors are realizing that even with a few late summer weather hiccups, there’s still going to be a solid corn carryout this Fall.

This is a completely weather dominated market right now.  We’ll have to keep waiting for a low risk/high reward trade opportunity in corn.

Some promising news for natural gas this week… 

The newest edition of the Farmer’s Almanac revealed the upcoming winter will likely be much colder than normal here in the US.  A long cold winter will go a long ways towards bringing inventories down, sending natural gas prices higher.

The commodity is holding up well this week thanks to a heat wave making its way across the US.  Temperatures are well into the 90s in most states.  Tomorrow’s EIA inventory report may reveal a slightly bigger than expected storage drawdown as a result.

Keep an eye on your email inbox in coming days.  We may have a trade in natural gas very soon.

Gold and silver are adding to gains from the past two weeks thanks to a surge in Middle East uncertainty.  As I’m sure you’ve heard, the situation in Syria is rapidly deteriorating.

I won’t go into all the details of the situation here.  All you need to know is, in times of geopolitical uncertainty, precious metals usually see a substantial increase in buying interest.

It’s tempting to get long these markets again.  Especially after our last trade in silver netted us gains of 222%.  But from a technical standpoint, both metals are overbought on a short-term basis.  We need to see gold and silver consolidate recent gains before they’ll be considered good low-risk long opportunities again.

Let’s get to our open position in oil…

 

Portfolio Recap

. . . . US Oil Fund (USO) September 2013 $36 Puts

Just as crude was starting to breakdown last week, the Syrian civil war took a dramatic turn for the worse.  As I’m sure you’re aware, WTI jumped over $112 a barrel today on fears of an imminent US attack on Syria.

Unfortunately, today’s surge triggered the risk control line I pointed out in the original trade alert.  As a result, conservative investors may want to close this trade.

Folks, had we not seen this unfortunate turn of events in Syria, oil would have traded much lower this week. 

In fact, today’s EIA report showed a 3 million barrel increase in US oil stocks- a clear sign that summer crude demand is waning.

The most frustrating thing about this put trade is that neither of the two countries experiencing problems in the Middle East, Syria and Egypt, are big oil exporters.

But it doesn’t matter…

The market is pricing in the risk of major oil exporters like Saudi Arabia and Iran being pulled into this quickly deteriorating situation.

Unfortunately, crude has become a completely news driven market. Bearish fundamentals don’t matter when you have the possibility of supply disruptions out of the Middle East.

Volatility in the oil market is going to be extreme over the next few weeks. 

But unless you can predict the news, it’s tough to make a low-risk trade in this market.

However, if you’re willing to stick with this trade a bit longer, go ahead and do so. We’ll need a very swift drop for oil next week to get this trade back in the green.  It’s unlikely considering the current situation, but you never know what can happen when you’re dealing with unpredictable news events.

Be on the lookout for another trade in your email inbox soon…

 

Category: Commodity Trading

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